Patterns of Foreign Direct Investment in Egypt: Descriptive Insights from a Novel Panel Dataset at the Governorate Level
Total Page：16
File Type：pdf, Size：1020Kb
A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Hanafy, Shima'a Working Paper Patterns of foreign direct investment in Egypt: Descriptive insights from a novel panel dataset at the governorate level MAGKS Joint Discussion Paper Series in Economics, No. 12-2015 Provided in Cooperation with: Faculty of Business Administration and Economics, University of Marburg Suggested Citation: Hanafy, Shima'a (2015) : Patterns of foreign direct investment in Egypt: Descriptive insights from a novel panel dataset at the governorate level, MAGKS Joint Discussion Paper Series in Economics, No. 12-2015, Philipps-University Marburg, Faculty of Business Administration and Economics, Marburg This Version is available at: http://hdl.handle.net/10419/119452 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Joint Discussion Paper Series in Economics by the Universities of Aachen ∙ Gießen ∙ Göttingen Kassel ∙ Marburg ∙ Siegen ISSN 1867-3678 No. 12-2015 Shima’a Hanafy Patterns of Foreign Direct Investment in Egypt— Descriptive Insights from a Novel Panel Dataset at the Governorate Level This paper can be downloaded from http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/index_html%28magks%29 Coordination: Bernd Hayo • Philipps-University Marburg Faculty of Business Administration and Economics • Universitätsstraße 24, D-35032 Marburg Tel: +49-6421-2823091, Fax: +49-6421-2823088, e-mail: [email protected] Patterns of Foreign Direct Investment in Egypt—Descriptive Insights from a Novel Panel Dataset at the Governorate Level Shima’a Hanafy. Philipps-University Marburg This version: 4. February 2015 Abstract This paper describes the main characteristics of Foreign Direct Investment (FDI) in Egypt using an unpublished dataset for FDI in 27 Egyptian governorates covering the period 1972– 2009. Special attention is given to the geographical distribution of FDI, both as an aggregate and at the sectoral level. The paper is the first article of a larger empirical project on FDI in Egypt at the governorate level. Our dataset shows that FDI is unevenly distributed across Egyptian governorates. More than 60% of ‘non-petroleum greenfield FDI’ stock has been accumulated by two governorates, Cairo and Giza, and roughly 90% of FDI stock targets only 10 governorates. Tracing two spatial concentration indices of FDI inflows (Gini coefficient and coefficient of variation) over four decades, we find that the unequal geographical distribution of FDI decreased until the mid/late 1990s. This trend, however, did not continue when there was a substantial increase of FDI inflows in the 2000s. Moreover, we find differences in the degree of geographical concentration of FDI between various economic sectors. Service FDI shows the strongest concentration (mostly articulated in the ICT and finance sectors), while manufacturing FDI is the most geographically dispersed. JEL Codes: F21, E22, R12, O53, Z10 Keywords: Foreign Direct investment, sectoral FDI, regional FDI, Egypt. Philipps-University Marburg, Faculty of Economics and Business Administration, Am Plan 2, D-35032 Marburg, Germany, Phone: +49-6421-2823200, Fax: +49-6421-282 8912, Email: [email protected] Thanks are due to Moamen Gouda, Bernd Hayo, participants of the Middle East Economic Association Post- ASSA Conference (January 2013, San Diego) and participants of research seminars at Philipps-University Marburg, for helpful comments and suggestions. I am deeply grateful to the General Authority for Investment and Free Zones (GAFI) in Egypt for providing me with the unpublished dataset. All remaining shortcoming are my own. 1 1. Introduction This paper provides a comprehensive description of Foreign Direct Investment (FDI) in Egypt beginning with the first years of FDI in the 1970s. We use a unique and unpublished dataset on ‘non-petroleum greenfield FDI’ in Egypt at the governorate level. When compared to other African and Arab countries, Egypt ranks high as a recipient of FDI.1 FDI inflows to Egypt have been a major component of the country’s total private investment across different sectors. From 1972–2009, ‘non-petroleum greenfield FDI’ constituted on average 23% of private investment in Egypt. When FDI inflows to Egypt surged in the 2000s, FDI comprised more than 30% of the country’s private investment. We are grateful to the General Authority for Investment and Free Zones (GAFI) in Egypt, which kindly made this dataset available to us. The dataset has several advantages. First, the data begin in 1972, when Egypt began to receive FDI inflows in anticipation of a new open-door policy.2 Second, FDI figures are disaggregated for all 27 Egyptian governorates. Thus, our data allow for an FDI panel dataset of 27 Egyptian governorates for the period 1972–2009. Third, the dataset allows for a disaggregation of FDI figures by sector. In addition to the manufacturing and agricultural sectors, it differentiates between five sub-groups of the service sector; finance, tourism, construction, Information and Communication Technology (ICT) and a category ‘other services’. Fourth, the dataset provides insights into the origin of FDI by differentiating between FDI from the Arab region and FDI from the rest of the world (non-Arab FDI). Finally, data on domestic private investment are further included in the dataset, both at the governorate and sectoral levels. Compiling the first dataset of FDI in Egypt at the governorate level—also by sector and origin—allows for a variety of empirical investigations of direct relevance for policymakers. This paper is the first article of a larger empirical project on FDI in Egypt at the governorate level that is based on this unique dataset. In this paper, we use this dataset to identify and 1 Since 2004, Egypt has annually received either the largest or the second largest amount of FDI in Africa (excluding the year 2011, where the 25th of January Uprising deterred FDI in Egypt), and has been the third largest FDI recipient among Arab countries (UNCTAD, 2014). 2 Egypt’s open-door policy officially started in 1974, but the country began receiving inflows in 1972. 2 describe features of aggregate (across all sectors) and sectoral FDI in Egypt, with a special focus on its geographical distribution. Our dataset shows that an important characteristic of FDI in Egypt is its uneven distribution across Egyptian governorates. Over our sample period, more than 60% of ‘non-petroleum greenfield FDI’ is accumulated in only two governorates (Cairo and Giza) and roughly 90% of this type of FDI targeted only 10 governorates. Examples from other countries clearly show that geographical concentration is not unusual.3 However, high concentrations of FDI in only a few relatively advanced regions might prevent the dissemination of possible positive FDI spillovers in the whole economy, since spillovers tend to be weaker by distance (Mukim and Nunnenkamp, 2012; Bikenbach et al., 2014). If this is the case, FDI might exacerbate regional inequalities in both income and economic growth. Empirical results by Lessman (2013) show that —other than in high income economies— FDI inflows in low and middle income countries increase regional inequality.4 To assess the pattern of FDI concentration over time, we make use of two spatial concentration indices (Gini coefficient and coefficient of variation), which we calculate based on the annual FDI inflow distribution at the governorate level. We find that unequal geographical distribution decreased until the mid/late 1990s, however, the substantial increase in FDI inflows in the 2000s did not further reduce geographical concentration. In the second part of the paper, we use our dataset to describe FDI in Egypt at the sectoral level. Most ‘non-petroleum greenfield FDI’ flows to Egypt target the manufacturing and service sectors, while the agriculture sector receives very little FDI. As to the origin of FDI, our dataset reveals that no sector is significantly dominated by Arab or non-Arab investments. Our analysis further differentiates the degree of FDI geographical 3 In India, for example, more than 50% of approved FDI inflows are concentrated in three states only (Nunnenkamp and Stracke, 2008) and more than 50% of FDI projects are hosted by 1% only of over 600 districts (Mukim and Nunnenkamp, 2012). Similarly, only one region in Russia accounts for almost 50% of the country’s FDI (Ledyaeva, 2009). In China, FDI inflows are heavily concentrated in the coastal